6923063 Micro Finance

8/8/2019 6923063 Micro Finance

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MICRO FINANCEMICRO FINANCE

by SBIby SBI


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What is Microfinance?What is Microfinance?

Microfinance is the provision of a broadMicrofinance is the provision of a broadrange of financial services such asrange of financial services such as

depositsdepositsloansloans

payment servicespayment services

money transfersmoney transfersinsurance to poor and lowinsurance to poor and low--incomeincomehouseholds and their micro enterpriseshouseholds and their micro enterprises


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Micro financeMicro finance

AnAn effective poverty reductioneffective poverty reduction

strategystrategyMicrofinance consists of making smallMicrofinance consists of making smallloans to individuals, usually women.loans to individuals, usually women.

Microfinance, the Grameen way, includesMicrofinance, the Grameen way, includesseveral support systems that contributeseveral support systems that contributegreatly to its successgreatly to its success

An equally important part of microfinanceAn equally important part of microfinanceis the recycling of fundsis the recycling of funds


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Three Types of Sources ofThree Types of Sources of

MicrofinanceMicrofinance

formal institutionsformal institutions -- i.e. rural banks andi.e. rural banks andcooperativescooperatives

semiformal institutionssemiformal institutions -- i.e.i.e.nongovernmental organizationsnongovernmental organizations

informal sourcesinformal sources -- i.e. money lenders andi.e. money lenders andshopkeepersshopkeepers


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Approaches to mFinanceApproaches to mFinance

The poverty approachThe poverty approach

Targets very poor clients who are very costly toTargets very poor clients who are very costly toserve. Like relief efforts, it measures success byserve. Like relief efforts, it measures success byhow well it fulfills the needs of the poorest in thehow well it fulfills the needs of the poorest in theshort term.short term.

The selfThe self--sustainabilitysustainability approachapproach

Targets lessTargets less--poor clients on the fringes of thepoor clients on the fringes of theFormal financial system. Like developmentFormal financial system. Like development

efforts, it measures success by how well itefforts, it measures success by how well itexpands the frontier of the mainstream economyexpands the frontier of the mainstream economyin the long termin the long term


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THE BEGINNING OF MICROTHE BEGINNING OF MICRO

FIN

ANCE

FIN

ANCE

The idea of microfinance was developed as aThe idea of microfinance was developed as asurvival strategy for the poor.survival strategy for the poor.

Ela Bhatt established the SelfEla Bhatt established the Self--EmployedEmployed

Women's Association (SEWA) in India in 1974.Women's Association (SEWA) in India in 1974.Ela Bhatt's first loan was $1.50 to a woman whoEla Bhatt's first loan was $1.50 to a woman whosold herbssold herbs

In 1976 Mohammed Yunus founded theIn 1976 Mohammed Yunus founded the

Grameen Bank project in Bangladash.Grameen Bank project in Bangladash.Mohammed Yunus' initial outlay was a total ofMohammed Yunus' initial outlay was a total of$27 to forty$27 to forty--two poor people.two poor people.


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Microfinance ModelsMicrofinance Models

MFI around the world follow a variety ofMFI around the world follow a variety ofdifferent methodologies for the provision ofdifferent methodologies for the provision offinancial services to lowfinancial services to low--income families.income families.

The focus of such services is on women,The focus of such services is on women,based on the observation that in financialbased on the observation that in financialmatters, they are more responsible thanmatters, they are more responsible than

men particularly since their mobility ismen particularly since their mobility isrestricted by family responsibilities.restricted by family responsibilities.


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SelfSelf--help Group (SHG)help Group (SHG)

The SHG is the dominant microfinanceThe SHG is the dominant microfinancemethodology in India.methodology in India.

The operations of 15T

he operations of 15--25 member SHGs are25 member SHGs arebased on the principle that savings precedebased on the principle that savings precedeborrowing by the members .borrowing by the members .

. In many SHG programmes, the volume of. In many SHG programmes, the volume ofindividual borrowing is determined either by theindividual borrowing is determined either by thevolume of member savings or the savings of thevolume of member savings or the savings of thegroup as a whole.group as a whole.


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Individual Banking ProgrammesIndividual Banking Programmes

IBPs entail the provision of financial services toIBPs entail the provision of financial services toindividual clientsindividual clients though they may sometimesthough they may sometimesbe organized into joint liability groups, credit andbe organized into joint liability groups, credit and

savings.savings.The model is increasingly popular forThe model is increasingly popular formicrofinance particularly through cooperatives.microfinance particularly through cooperatives.

Creditworthiness and loan security are aCreditworthiness and loan security are a

function of cooperative membership within whichfunction of cooperative membership within whichmember savings and peer pressure aremember savings and peer pressure areassumed to be a key factorassumed to be a key factor


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Grameen ModelGrameen Model

This model was initially promoted by the wellThis model was initially promoted by the wellknown Grameen Bank of Bangladesh.known Grameen Bank of Bangladesh.

These undertake individual lending but allThese undertake individual lending but all

borrowers are members of 5borrowers are members of 5--member jointmember jointliability groups which, in turn, get together with 7liability groups which, in turn, get together with 7--10 other such groups from the same village or10 other such groups from the same village orneighborhood to form a centreneighborhood to form a centre

. Savings are a compulsory component of the. Savings are a compulsory component of theloan repayment schedule but do not determineloan repayment schedule but do not determinethe magnitude or timing of the loan.the magnitude or timing of the loan.


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Common Characteristics ofCommon Characteristics of

Microfinance ModelsMicrofinance ModelsAttendance of regular weekly (fortnightly orAttendance of regular weekly (fortnightly ormonthly) meetings of her group.monthly) meetings of her group.

Training in loan utilization or participation inT

raining in loan utilization or participation indiscussions of developmentally relevant issuesdiscussions of developmentally relevant issuessuch as social discrimination, gendersuch as social discrimination, genderawareness, health, sanitation and educationawareness, health, sanitation and education

Repayment of fixed amounts as instalments onRepayment of fixed amounts as instalments onany loan she obtains from the MFI or from herany loan she obtains from the MFI or from hergroup.group.


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The Benefits of MicrofinanceThe Benefits of Microfinance

Continued access to funding to lowContinued access to funding to lowincome clientsincome clients

Fast and easy procedureFast and easy procedureAccompanying non financial servicesAccompanying non financial services

Direct contact with clientsDirect contact with clients

Product tailored to clients needsProduct tailored to clients needs


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The Negative aspects ofThe Negative aspects of

MicrofinanceMicrofinanceMaintaining a sustainable small loansMaintaining a sustainable small loansprogram is costly, and the high interestprogram is costly, and the high interestrates take their toll on borrowers,rates take their toll on borrowers,

Business training and support is importantBusiness training and support is importantso that loans can be effectively used.so that loans can be effectively used.

Running a business has added to theirRunning a business has added to their

workload and changed their role in theworkload and changed their role in thefamily, sometimes putting a strain on theirfamily, sometimes putting a strain on theirmarriagemarriage


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Thank uThank u

6923063 Micro Finance

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